Suppose there is a technology to produce Grendels such that there are diseconomies of scale after the first unit is produced.There are both fixed (a physical plant called a lair)and variable (food that grows in lairs)costs of production.Which statement is true?

Question

Quizplus · Accepted Answer

Since there are diseconomies of scale, it is cheaper to produce each unit in a separate lair, rather than producing multiple units in one lair. This will increase the variable costs (food) as more lairs will need to be purchased, but the fixed costs (lairs) will remain the same. Thus, producing five Grendels by buying five lairs and producing one Grendel in each lair is cheaper than producing five Grendels in one lair. Option B is incorrect because fixed costs remain the same regardless of the number of units produced. Option C is incorrect because having multiple firms is possible, but all firms will follow the same strategy of producing one unit per lair. Option E is incorrect because this situation is possible, albeit unusual. Option A is incorrect because statements B and D are not contradictory.

Suppose There Is a Technology to Produce Grendels Such That